Tuesday, June 4, 2013

Pillars of Prosperity – The Alleged Failure of Capitalism

Description: This is the third topic under The Economics of a Free Society. I think the central argument of the author is that capitalism does not exist in a society that breeds inflationism, interventionism, and corporatism.
Blaming the dead for the crimes of the living and blaming the victim for the misdeeds of the villain are uncommon themes even in film making and book writing. Basic morality would denounce such transgression as utterly corrupt and wicked. Unfortunately, a parallel scenario is allowed in current economic situation either due to ignorance or due to a collective ideology whose loyal advocates are willing to employ whatever means necessary to accomplish their heart’s desire.
Alleged Crimes of Capitalism
In July 9, 2002, Congressman Ron Paul discredited in his speech at the US Congress the alleged “crimes” of capitalism. In that year, blaming capitalism for economic problems was considered politically correct. If that was the case 10 years ago, it is not surprising to read that hatred against capitalism have continually increased most especially after the 2008 economic crisis.
free market capitalism
The prevailing dominant social themes advanced by the mainstream media since that time are the failure of capitalism and the need for a greater government regulation. This is unfortunate for this would mean not a rosy future for the advocates of personal liberty and the free market.
The only way to reverse this erroneous trend is through genuine education. People need to know what is really going on in global economy. Listening to the message of the Tea Party Congressman and other Austrian economists is the path to this kind of education.
In his speech, Dr. Paul claims that there is nothing new with the erroneous identification of the source of economic woes. Similar story happened in the 1930s. The greed of capitalist and businessmen was blamed for economic depression.  This erroneous mindset needs to be corrected to avoid further economic destruction. If not, wealth that the free market created in the first place will be finally destroyed.
Dr. Paul identified two primary causes for the present hatred against capitalism. One is ignorance. And two is the natural limitation imposed by sound economic principles inherent in capitalism. Government leaders do not want this limitation.
Dr. Paul argued that capitalism should not be blamed for present economic sufferings. Despite of mainstream propaganda that the excesses of capitalism are to be blamed, careful and closer analysis of economic situation leading to the crisis would lack sufficient basis to identify capitalism as the source of economic crisis. Instead, another political and economic system would emerge as primarily responsible for the crisis.
How could a non-existent capitalism cause economic destruction? The basic economic prerequisites for the existence of capitalism are largely missing in our existing economic condition. Honest money does not exist. Voluntary contracts and natural interest rates are also lacking. What we have are fiat money and credit expansion by a central bank. Capitalism does not exist.
Dr. Paul describes such absence of capitalism.
“It’s not capitalism when the system is plagued with incomprehensible rules regarding mergers, acquisitions, and stock sales, along with wage controls, price controls, protectionism, corporate subsidies, international management of trade, complex and punishing corporate taxes, privileged government contracts to the military-industrial complex, and a foreign policy controlled by corporate interests and overseas investments. Add to this centralized federal mismanagement of farming, education, medicine, insurance, banking and welfare. This is not capitalism!” (p. 43).
The economic system causing repeated economic crisis is appropriately identified as “interventionist-planned economy.” Its other designations are “Keynesian inflationism,” “interventionism,” and “corporatism.” After identifying the real culprit, Congressman Paul admonished the US Congress to investigate the process of wealth destruction caused by the existing monetary system. This investigation is critical to put a stop to popular economic solution and to apply genuine solution that will restore capitalism back with all its creative energies.
Popular economic solution coming from “interventionist-planned economy” will certainly aggravate the existing economic crisis. This includes the following measures:
  • Increase spending
  • Increase debt
  • Increase easy credit
  • Distortion of interest rates
  • More government regulation, and
  • More foreign intervention
On the other hand, genuine economic solution coming from free market capitalism consists of the subsequent concrete actions:
  • A return to gold standard
  • Cut spending
  • Reduction of income taxes
  • Removal of taxes from savings, dividends, and capital gains
  • Decrease in government regulation
  • Discontinuation of special-interest subsidies
  • Cessation of protectionist measures
  • Change in foreign policy, and
  • Bringing the US soldiers back to their families
Free market capitalism cannot exist in an atmosphere of inflationism, interventionism, and corporatism. The alleged “crimes” of capitalism are baseless and a fabrication of the proponents of collectivist ideology to continually mislead the public about what is really going on. Your primary responsibility is to study the message of Austrian economists.
Personal Prayer
Almighty Father, Creator of heaven and earth, Lord of truth and justice, you know the hearts of men and women. There is so much fear reigning, so much anger, and so many are unsatisfied with what is going on in world economy. There is so much deception and so much lies.
Let the truth about what is really going on come out into the public. Expose the primary cause of world economic troubles resulting to social unrest. Enlighten the minds of the people. Grant us wisdom to see the message of truth and liberty. Let there be genuine solutions. “Let the nations know they are but men” (Psalm 9:20b).
Source: Paul, Ron. (2008). Pillars of Prosperity: Free Markets, Honest Money, Private Property. Auburn, Alabama: Ludwig von Mises Institute.